It has been common in Vietnam to see prices listed in foreign currencies, and traditionally items, especially land, have been valued in gold rather than money. However, with the erratic fluctuations in the financial markets, the devaluations of the Vietnamese dong (VND) and the sharp increase in the price of gold, the State of Vietnam has determined to exert stricter control over financial markets and particularly the widespread use of foreign currencies and gold pricing on the domestic market.
In an attempt to eliminate this parallel pricing system and halt further inflation and VND devaluation, on October 20 2011, the government promulgated Decree No. 98/2011/ND-CP (Decree 95) amending Decree No. 202/2004/ND-CP (December 10 2004) on penalties for administrative offences in the monetary and banking sectors.
Decree 95 develops the enforcement of the laws established in the Ordinance on Foreign Exchange Control (December 13 2005), and Decree 160/2006/ND-CP (December 28 2006), which provide that all transactions, payments, listings and advertisements by residents and non-residents carried out in Vietnam must be conducted in VND, except in certain limited cases.
Decree 95 focuses on violations of the regulations controlling foreign exchange and gold trading as follows:
Increasing severity of penalties
There has been a steep increase in the fines for violations of foreign exchange and gold trading control: they have increased approximately eight-fold.
A fine of VND50 million to VND100 million (approximately $2,500 to $5,000) applies to any of the following acts:
- lending, providing finance leasing or repaying debts domestically in foreign currency, contrary to the law;
- remitting or carrying foreign currency into or out of Vietnam contrary to the law (save that the carrying of foreign currency or gold into or out of Vietnam through border checkpoints by individuals or organisations shall be dealt with under customs regulations and penalties (see Frasers Law Company September 2011 Newsletter for further details); or
- buying or selling goods or making payments in foreign currency or gold, contrary to the law.
A fine of VND300 million to VND500 million applies to any one of the following acts:
- engaging in foreign exchange activities without a forex licence from the competent authority, or with a forex licence which has expired or is suspended;
- providing forex services for Vietnamese residing overseas without a licence from the competent authority;
- importing or exporting foreign currency or gold without a licence from the State Bank; or
- listing prices, or advertising goods or services or land use rights in foreign currency or gold, contrary to the law.
It is notable that, in respect of the last breach, the applicable fine has increased about fifty times from a range of VND5 million to VND12 million to a range of VND300 million to VND500 million. The Vietnamese authorities have demonstrated a clear intention to enforce Decree 95 with fines at the maximum limit being handed down to several companies who had continued to price in US dollars.
As the regulations extend to contracts that determine pricing in VND by reference to the exchange rate of a particular foreign currency, businesses which contract in foreign currencies for overseas goods or services may find it difficult to regulate the risk of currency fluctuations and attention should be paid in contract drafting to alleviate such risk where possible.
Decree 95 came into force with immediate effect on October 20 2011.
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